HCA said two directors are leaving its board and a shareholder has asked Jack Bovender Jr., HCA's chairman and chief executive officer, to volunteer to discuss with the board's compensation committee ways to cut his own pay .
HCA disclosed in its annual proxy statement with the Securities and Exchange Commission that J. Michael Cook and Carl Reichardt are stepping down from the board-reducing it to 13 members- in May. The board expects to find two replacements, HCA spokesman Jeffrey Prescott said.
Cook was chairman and CEO of the accounting firm Deloitte & Touche from 1986 to 1999 and joined HCA's board in 1999. Reichardt joined the board of the former Hospital Corporation of America, one of HCA's predecessor companies, in 1972. He retired in 1994 as chairman and CEO of Wells Fargo & Co. Since 1996, he has been a director of San Francisco-based McKesson Corp., which supplies information technology and cost-management services to healthcare providers. Prescott said both men retired voluntarily for personal reasons.
The shareholder proposal was made by the United Association S&P 500 Index Fund, which is affiliated with the United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry of the United States and Canada.
The proposal asks the board's compensation committee and Bovender "to review ways he can voluntarily reduce his compensation to more reasonable and justifiable levels." In 2002, Bovender was paid $1.1 million in salary; granted restricted stock valued at $2 million; awarded other compensation (primarily in the form of a contribution to the company retirement plan) of $291,410; and given options to buy 225,000 shares at $41.84, according to the proxy statement. HCA, Nashville, is the nation's largest investor-owned hospital chain with 192 hospitals.
The request comes at a time when other publicly traded healthcare companies are facing increased scrutiny over executive compensation. In comparison, Jeffrey Barbakow, chairman and CEO of Tenet Healthcare Corp., the nation's second-largest chain with 114 hospitals, was paid $1.2 million in salary, $4.2 million in a bonus, $249,571 in other compensation and granted 1.5 million in stock options, according to Tenet's proxy statement for fiscal 2002, ended May 31. Barbakow will relinquish the title of chairman and step down from Tenet's board later this year (April 14, p. 6).
HCA's board recommends that shareholders reject the union proposal. Its response noted that an investment in HCA on Dec. 31, 1997, would have reaped greater returns than the Standard & Poor's 500 Index did as of the end of the 2001 and 2002 calendar years. The union fund consists of shares of the 500 companies in the index.
Last week was not a good one for returns on HCA's shares, however. They lost about 20% of their value after the company said patient volume for the first quarter declined 0.4% in hospitals it has operated for 12 months or more. HCA said the volume decline would lead to lower-than-expected earnings. The company will report its first-quarter earnings this week.
HCA said its admissions for pulmonary and flu-related illnesses dropped 9% in the quarter, a change attributed to a mild flu season. The closing of 17 skilled-nursing and seven obstetrics units, which are being converted to acute-care use, also contributed to the admissions decline, HCA said. Most of those units are still being renovated, Prescott said.
Healthcare analyst Darren Lehrich of SunTrust Robinson Humphrey Capital Markets said in a report that HCA's protracted contract dispute with Blue Cross and Blue Shield of Tennessee suggests HCA will have trouble maintaining year-to-year contract increases of 6% to 7% from its managed-care payers in general.
Lehrich also calculated that the new rule, proposed in March for Medicare outlier payments, would cost HCA 16 cents per share in annual earnings. HCA's year-end report to the SEC said the rule change, if it goes into effect, could cost the company $144 million in revenue.